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Cheena Francesca J. Luciano-Q2-Genmath-Week-3-4-Handout-Worksheet
Cheena Francesca J. Luciano-Q2-Genmath-Week-3-4-Handout-Worksheet
Cheena Francesca J. Luciano-Q2-Genmath-Week-3-4-Handout-Worksheet
After learning about simple and compound interests and having encountered real-life problems that
requires their application, we can now move to the topic on annuity which is commonly used in finance
and insurance business. There are various applications of annuities in the real world like that of paying a
car, appliance, house and lot, tuition fee, etc. by installment basis.
ANNUITY
a sequence of payments made at equal (fixed) intervals or periods of time
may be classified in different ways, as follows:
ANNUITIES
According to payment interval Simple Annuity – an annuity General Annuity – an annuity
and interest period where the payment interval is where the payment interval is
the same as the interest period not the same as the interest
period
According to time of payment Ordinary Annuity (or Annuity Annuity Due – a type of annuity
Immediate) – a type of annuity in which the payments are made
in which the payments are made at beginning of each payment
at the end of each payment interval
interval
According to duration Annuity Certain – an annuity in Contingent Annuity – an
R Rwhich Rpayments R begin
R and ⋯end annuity
R in which the payments
at definite times extend over an indefinite (or
0 1 2 3 4 5 indeterminate)
n length of time
DEFINITION OF TERMS
Payment Interval – the time between successive payments
Term of an annuity, t – time between the first payment interval and last payment interval
Regular or Periodic payment, R – the amount of each payment
Amount (Future Value) of an annuity, F – sum of future values of all the payments to be made during
the entire term of the annuity
Present value of an annuity, P – sum of present values of all the payments to be made during the
entire term of the annuity
EXAMPLE 1. In order to save for his high school graduation, Josh decided to save P200 at the end of
each month. If the bank pays 0.250% compounded monthly, how much will his money be at the end of 6
years?
Given: periodic payment R=200 term t =6 years
(12)
number of conversions per year m=12interest rate per annum i =0.250 %∨0.0025
0.0025
interest rate per period j= =0.000208 3 n=tm=( 6 )( 12 ) =72 periods
12
Find: F
Solution.
( 1+ j )n−1
F=R ∙
j
(1+ 0.0002083 )72−1
F=(200)
0.000208 3
F=14,507.85
Hence, Josh will be able to save P14,507.85 for his graduation.
EXAMPLE 2. Suppose Mrs. Garcia would like to know the present value of her monthly deposit of
P3,000 when interest is 9% compounded monthly. How much is the present value of her savings at the
end of 6 months?
Given: periodic payment R=3,000 term t=6 months∨1/2 yearsno .of conversions per year m=12
0.09
interest rate per annumi(12)=0.09 interest rate per period j= =0.0075
12
n=tm= ( 12 )( 12 ) =6 periods
Find: P
Solution.
1−( 1+ j )−n
P=R ∙
j
P=17,536.79
The cash value or cash price of a purchase is equal to the down payment (if there is any) plus the
present value of the installment payments.
EXAMPLE 3. Mr. Ribaya paid P200,000 as down payment for a car. The remaining amount is to
be settled by paying P16,200 at the end of each month for 5 years. If interest is 10.5%
compounded monthly, what is the cash price of his car?
(12) 0.105
Given: down payment =200,000 R=16,200 i =0.105 m=12 j= =0.00875
12
t=5 years n=mt =( 12 )( 5 )=60
Find: cash value or cash price of the car
2
Solution. The present value of this ordinary annuity is given by
−n −60
1−( 1+ j ) 1−( 1+0.00875 )
P=R ∙ =( 16200 ) =753,702.20
j 0.00875
Cash value=down payment + present value
¿ 200,000+753,702.20
¿ P 953,702.20
The cash price of the car is P953,702.20
Periodic payment R can also be solved using the formula for future value F or present value P
of an annuity
F=R ∙
( 1+ j )n−1
j
⟹ R=F /
j(
( 1+ j )n−1
)
P=R ∙
1−( 1+ j )−n
j
⟹ R=P/
1−( 1+ j )−n
j ( )
where:
R is the regular/periodic payment;
P is the present value of an annuity
F is the future value of an annuity
j is the interest rate per period;
n is the number of payments
EXAMPLE 4. Paolo borrowed P100,000. He agrees to pay the principal plus interest by paying an equal
amount of money each year for 3 years. What should be his annual payment if interest is 8%
compounded annually?
Given: P=100,000 i (1) =0.08 m=1 j=0.08 t=3 years n=mt=( 1)(3)=3 periods
Find: periodic payment R
Solution.
P 100,000
R= = =P 38,803.35
( )( )
−n
1−( 1+ j ) 1− (1+ 0.08 )−3
j 0.08
DEFINITION OF TERMS
General Annuity – an annuity where the length of the payment interval is not the same as length of the
interest compound period
General Ordinary Annuity – a general annuity in which the periodic payment is made at the end of the
payment interval
The future value F and present value P of a general ordinary annuity is given by
( 1+ j )n−1
F=R ∙
j
−n
1−( 1+ j )
P=R ∙
j
where:
R is the regular/periodic payment;
P is the present value of an annuity
F is the future value of an annuity
j is the equivalent interest rate per payment interval converted from the interest rate per period;
n is the number of payments
The formulas for F and P are the same as those in simple annuity. The extra step occurs on finding j: the
3
given interest rate per period must be converted to an equivalent rate per payment interval. It is
suggested that you use at least six decimal places, or the exact value when solving for an equivalent
rate.
EXAMPLE 5. Chris started to deposit P1,000 monthly in a fund that pays 6% compounded quarterly.
How much will be in the fund after 15 years?
Given: R=1,000i (4)=0.06 t=15 years m=4 n=( 15 )( 12 ) =180
Find: future value F
Solution.
(1) Convert 6% compounded quarterly to its equivalent interest rate for monthly payment interval
F 1=F2
( ) ( )
(12) ( 12) t (4) ( 4 ) t
i i
P 1+ =P 1+
12 4
i(12) 4 (1 /12)
1+ = [ (1.015 ) ]
12
i(12) 1/ 3
=(1.015) −1
12
(12)
i
= j=0.00497521
12
(2) Apply the formula in finding the future value of an ordinary annuity using the computed equivalent
rate:
( 1+ j )n−1 ( 1+ 0.00497521 )180−1
F=R ∙ = (1000 ) =290,082.51
j 0.00497521
EXAMPLE 6. Mrs. Tan would like to buy a television (TV) set payable for 6 months starting at the end of
each month. How much is the cost of the TV set if her monthly payment is P3,000 and interest is 9%
compounded semi-annually?
(2 ) 1
Given: R=3,000i =0.09 t=15 yearsm=2n= =6 payments
2 ( 12 )
Find: cost (present value P) at the beginning of the term
Solution.
(1) Convert 9% compounded semi-annually to its equivalent interest rate for monthly payment
interval
F 1=F2
( ) ( )
(12) ( 12 ) t (2) ( 2 ) t
i i
P 1+ =P 1+
12 2
(12)
i 2 (1/ 12)
1+ = [ (1.045 ) ]
12
i(12) 1/ 6
=(1.045) −1
12
i(12)
= j=0.00736312
12
(2) Apply the formula in finding the present value of an ordinary annuity using the computed
equivalent rate:
−n −6
1−( 1+ j ) 1−( 1+0.00736312 )
P=R ∙ =( 3000 ) =17,545.08
j 0.00736312
REFERENCES
Teaching Guide for Senior High School: General Mathematics. Commission on Higher Education
(2016). Pp. 199-220
General Mathematics Learner’s Material. Pp. 99-136.
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COHO + MELC QUAWS
Teacher: Ms. Rosa Jean Gonzaga Date Submitted: January 21, 2022
Activity No. 1
Direction: Read and analyze each problem. Solve for what is required. Show your complete
solution.
Given:
( 1+ j )n−1
F=R ∙
R=18,000 j
t=10 ( 1+0.025 )20−1
F=18,000 ∙
i=5 %∨0.05 0.025
m=2 F=459,803.84
n=mt= ( 2 )( 10 )=20
She will receive 459,803.84 pesos from
i 0.05
j= = =0.025 the deposit she made after ten years.
m 2
5
2. A television (TV) set is for sale at P13,499 in cash or on installment terms, P2,500
each month for the next 6 months at 9% compounded monthly. If you were the
buyer, what would you prefer, cash or installment?
Given:
( 1+ j )n−1
R=2,500 F=R ∙
j
1 ( 1+0.0075 )6−1
t=6 months∨ yrs F=2,500 ∙
2 0.0075
i=9 %∨0.09 F=15,284.08
m=12
If I were to be the buyer, I would prefer to buy
n=mt= (12 )
1
2 ()
=6 the television in cash because if we compare
the price in cash with the price for installment,
i 0.09 paying in cash is 1,785.08 pesos cheaper than
j= = =0.0075
m 12
paying with installment terms.
3. In order to have a fund of 1,000,000 at the end of 12 years, equal deposits every 6
months must be made. Find the semi-annual payment if interest is at 6%
compounded annually.
Given: F
R=
F=1,000,000
m1=2
( ( 1+ j )n−1
j )
1,000,000
m 2=1 R=
( )
1/ 2
0.06
j= 1+ −1
1
j=0.029563
6
Activity No. 2
Direction: Complete the table below by finding the unknown present value (P), and future value (F).
Indicate whether it is a simple annuity or general annuity.
Present Value P Interest Rate Term Periodic Payment R Type of Annuity
12% compounded
(1) 90,150.73 pesos 5 years P2,000 monthly (6) General Annuity
quarterly
8% compounded P20,500 semi-
(2) 307,877.88 pesos 10 years (7) General Annuity
annually annually
5% compounded
(3) 634,341.86 pesos 15 years P15,000 quarterly (8) General Annuity
annually
(4) 1,632.12 pesos 15% compounded daily 1 month P54 daily (9) Simple Annuity
10% compounded
(5) 136 , 363 .63 pesos 1 year P150,000 annually (10) Simple Annuity
annually
( ) 0.08
4 / 12
j= 1+ −1 R=54
j= 1+ −1
4 1
t=15 1
t=1 month∨ yrs
i=5 %∨0.05 12
j= 1+ −1
( )
−30.42
m2 1−( 1+ 0.012272 )−60 1 1−( 1+0.000411 )
P=15,000 ∙ n=mt= (365 ) P=54 ∙
=30.42
0.012272 12 0.000411
(
j= 1+
0.05 1 / 4
1 )
−1P=634,341.86
i 0.15
j= =
P=1,632.12
=0.000411
m 365
7
5.) Given:
−n
R=150,000 1−( 1+ j )
P=R ∙
j
t =1
1−( 1+ 0.1 )−1
i=10 %∨0.1 P=150,000 ∙
0.1
m=1
P=136,363.63
n=mt= (1 ) ( 1 )=1
i 0.1
j= = =0.1
m 1
mt=10
40
( 1+0.005 ) −1 ( 1+45.963589 )30.42 −1
2=1 F=5,000 ∙ m2=1 F=20 ∙
0.005 45.963589
i=2 %∨0.02
t=5 1
F=220,794.24 t=1 month∨ yrs F=3,271.78
m=4 12
i=12 %∨0.12
n=mt= ( 4 )( 10 ) =40 i=20 %∨0.2
n=m1 t=( 2 ) ( 5 )=10
(m
j= 1+
i 0.02
4 −1
)
j= =i m /m=0.005 2 1
( 1+ j )n−1
n=m1 t=( 365 ) ( 121 )=30.42
m2 F=R ∙
j
( )
m2 /m1
i
j= 1+ −1
( )
1 /2
0.12 m2
j= 1+ −1 ( 1+0.058301 )10−1
1 F=105,000 ∙
0.058301
( )
1 /365
0.2
j=0.058301 j= 1+ −1
F=1,372,990.31 1
8
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